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Confidence returns to deal making

Matthew Toole  Director, Deals Intelligence, Thomson Reuters

Matthew Toole  Director, Deals Intelligence, Thomson Reuters

Thomson Reuters Matthew Toole takes a look at the global deal trends and highlights across mergers and capital markets in 2014.

It was the year that deal makers have been waiting for. After grappling with six years of post-financial crisis fits and starts, global deal making began firing on all cylinders over the course of 2014 with significant gains across mergers and capital markets.

Despite improving economic indicators, record corporate cash levels, a rising stock market and low interest rates, C-suite confidence seemed to be the missing component to a resounding signal that the next deal cycle had arrived. All of that changed in the first quarter of 2014 with a number of large-scale strategic bids across a number of sectors – competing bids for New York’s Time Warner Cable and France’s SFR in the Media and Telecom sectors, Facebook’s audacious $19 billion takeover of WhatsApp in the Tech sector and the beginnings of an all-time record year for Healthcare and Pharma M&A with Actavis PLC’s acquisition of Forest Laboratories.

A steady pace of deal announcements and the return of “Merger Monday” helped drive M&A activity to levels not seen since 2007, and gave CEOs and investment bankers plenty to think about for 2015.

The market for IPOs and corporate debt didn’t sit quietly on the sidelines as investor appetite for new listings drove IPO volumes to pre-financial crisis levels with stock exchanges from London to Shenzhen re-opened for business. In the United States, Alibaba’s record-setting offering on the New York Stock Exchange pushed activity to levels not seen since the tech boom in 2000. With interest rates at record lows and a potential rate hike on the horizon, corporate debt issuers continued to flood the market with new paper from refinancings to acquisition financing, lifting the US dollar bond market to over $1 trillion for the third consecutive year.

Highlights from the year that was and 2015 predictions from Reuters Breakingviews follow:

Global investment banking

Fees paid to global investment banks, from M&A advice to capital markets underwriting, totaled US$90.1 billion during full year 2014, a 7% increase over last year at this time and the strongest annual period for fees since 2007. Fees in the Asia Pacific totaled US$11.9 billion, an 18% increase from 2013 while fees in Europe increased 15% and Americas increased 3%. Fees in Africa/Middle East increased 9% compared to a year ago, while fees in Japan fell 11% compared to 2013 levels.

J.P. Morgan topped the global investment banking league table during full year 2014 with US$6.3 billion in fees, or 7.0% of overall wallet-share. Bank of America Merrill Lynch booked US$5.6 billion in fees during full year 2014 for second place despite a decrease of 0.8 wallet-share points. The composition of the top 10 banks remained nearly unchanged, with just UBS moving into the top ten. Within the top 10, Morgan Stanley, Deutsche Bank and Citi saw increased share compared to a year ago, while seven of the top firms lost a combined 2.0 wallet-share points.

Investment banking activity in the Financials, Energy & Power and Industrials sectors accounted for 51% of the global fee pool during full year 2014. J.P. Morgan topped the fee rankings in six sectors during the year, with double-digit wallet-share in the Healthcare sector. Bank of America Merrill Lynch registered an industry-leading position in three industry categories, including 9.3% wallet-share in the Retail sector. Fees from deal making in the Healthcare sector increased 48% compared to a year ago while Retail, Consumer Products, Energy & Power and Technology fees posted double-digit percentage gains.

Investment banking fees and underlying activities (2007-2014)

A steady mix of advisory and underwriting activities pushed full 2014 investment banking fees to the highest levels since 2007.

Chart shows investment banking fees and underlying activities (2007-2014)

Worldwide mergers & acquisitions

Powered by a resurgence of deals over $5 billion, the value of worldwide M&A totaled US$3.5 trillion during full year 2014, a 47% increase from comparable 2013 levels and the strongest annual period for worldwide deal making since 2007. Ninety-five deals with a value greater than $5 billion were announced during full year 2014, more than double the value and number of large-cap deals announced during 2013.

Long missing from the global deal making, M&A activity for European targets totaled US$869.8 billion during full year 2014, an increase of 55% compared to the level of activity seen during full year 2013. With US$716.2 billion in announced deals during full year 2014, Asia Pacific M&A registered the strongest annual period for deal making in the region since records began in 1980.

Deal making in the Media and Entertainment sector totaled US$308.5 billion during full year 2014, more than double 2013 levels, while Healthcare and Energy & Power M&A increased 94% and 66%, respectively. With just over US$162 billion in announced deals during full year 2014, the Telecommunications sector was the only industry to see year-over-year percentage declines, down 37% compared to full year 2013.

Cross-border M&A activity totaled US$1.3 trillion during full year 2014, accounting for 37% of overall M&A volume and a 78% increase over full year 2013 levels. Cross-border M&A accounted for 31% of total M&A activity during full year 2013.

Cross-border M&A (2004-2014)

With a flurry of trans-Atlantic and intra-Europe tie-ups, cross-border deal making pushed worldwide merger activity to levels not seen since the financial crisis.Chart shows cross-border M&A activity

Global equity capital markets 

Equity capital markets activity totaled US$890.4 billion during full year 2014, an 11% increase compared to full year 2013 and the strongest annual period for global equity capital markets issuance since 2007. Fourth-quarter equity capital markets issuance decreased 8% compared to the third quarter of the year.

Initial public offering activity during full year 2014 totaled US$249.0 billion, an increase of 51% from last year and the strongest annual period for global IPOs since 2010. Issuers in China, the United States and United Kingdom accounted for 58% of all activity during full year 2014, up from a combined 51% a year ago. Bolstered by four of the world’s top five listings this year including Alibaba Group’s record-breaking $25.0 billion IPO, Asia Pacific IPOs totaled $100.7 billion during full year 2014, the strongest annual period since 2010.

Led by financial issuers (20%), the overall volume of equity capital markets activity remained highly concentrated among five main sectors including Energy & Power (14%), Technology (12%) and Industrials and Real Estate (11%).

IPO markets (2000-2014)

The global IPO market returned in full force during 2014 led by Alibaba’s record-breaking offering and significant gains across European and Asian exchanges.

Chart shows changes in global IPO markets

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